Amazon’s “One-Click” Patent Granted in Canada: A Case Comment on the Federal Court of Appeal Decision

The patentability of business methods has been a major source of controversy in Canadian patent law. While the Federal Court of Appeal (“FCA”) had the opportunity to clarify the patentability of business methods in Canada (Attorney General) v Amazon.com, Inc, 2011 FCA 328, it left many questions unanswered, only affirming that business methods were not automatically excluded from patentability. After directing the Commissioner of Patents to re-examine the patent, the Canadian Intellectual Property Office (CIPO) has finally granted the business method patent to Amazon. This decision is interesting, not only because it raises a significant question of law, but also because it will stand as precedential authority for the viability of business method patents in the future.

Background

In the 1990s, Amazon invented a method for completing an online purchase using only a single mouse click (dubbed the “one-click” method), which has made internet shopping so convenient that customer won’t (or can’t) think twice before purchasing. Certainly, the one-click method is of tremendous value to Amazon and has helped drive Amazon to the top of the e-commerce industry. In 1998, Amazon filed a patent application for the one-click method entitled “Method And System For Placing A Purchase Order Via A Communication Network”. It succeeded in obtaining patents in the United States, Australia and New Zealand, but not in Europe.

More specifically, the claimed invention facilitates Internet shopping by eliminating the string of actions customers must follow to finalize a purchase. The customer visits a website, enters his or her address and payment information once, and is given an identifier stored in a “cookie” in their computer. A “server” operating a commercial website is able to recognize the customer’s “cookie” and recall the purchasing information. The customer can thus purchase an item with a “single click” – the order is made without the need to ‘check out’ or enter any additional information.

Judicial History

The patent application took a heavy thrashing from the Commissioner of Patents, who found in 2009 that the invention did not come within the meaning of “invention” under section 2 of the Patent Act, RSC 1985, c P-4 [the Act]. More specifically, the Commissioner gave the following three reasons:

It does not add to human knowledge anything that is technological in nature;

It is merely a business method and a business method is not patentable; and

It does not cause a change in the character or condition of a physical object.

Amazon appealed the Commissioner’s decision to the Federal Court, where Justice Phelan quashed the Commissioner’s decision and essentially ordered the Commissioner to grant the patent (Amazon.com, Inc. v Canada (Attorney General), 2010 FC 1011). Rather than granting the patent, the Commissioner appealed the decision to the FCA. After the FCA released its decision on November 24, 2011, the Commissioner granted the one-click method patent on December 23, 2011. This article summarizes and comments on the FCA decision.

What is the Meaning of “Invention” under s. 2 of the Patent Act?

The main issue under appeal is whether a “business method” is patentable under Canadian law. Section 2 of the Act provides that an “invention” means “any new and useful art, process, machine, manufacture of composition of matter, or any new and useful improvement in any art, process, machine, manufacture of composition of matter.” Section 27(8) of the Act prohibits the granting of a patent for a “mere scientific principle or abstract theorem”. However, while “a disembodied scientific idea is not per se patentable, it will be patentable if it has a method of practical application” (see Shell Oil Co of Canada v Canada (Commissioner of Patents), [1982] 2 SCR 536).

Analytical Framework in Determining Patentable Subject Matter

In establishing the analytical framework, the Attorney General of Canada took the position that the Commissioner must first identify the “actual invention” (what the inventor has claimed to have invented) without the construction of the patent claims, and then determine whether the actual invention falls within one of the five categories of “invention” under s. 2 of the Act.

However, the FCA disagreed. The FCA relied on the statements made in Free World Trust v Électro Santé Inc, [2000] 2 SCR 1024 [Free World], and Whirlpool Corp v Camco Inc, [2000] 2 SCR 1067 [Whirlpool], in which the Supreme Court of Canada (“SCC”) firmly established that “purposive patent construction is an antecedent to the determination of the validity or infringement of a patent.” The FCA held that the subject matter could not be determined solely on the basis of a literal reading of the patent claims, and had to be assessed on a purposive construction of the claim so that the Commissioner was “alive to the possibility that a patent claim may be expressed in language that is deliberately or inadvertently deceptive”. The FCA further cautioned against the use of “catch phrases, tag words and generalizations” derived from jurisprudence and reiterated that the analysis should be focused on governing principles instead of repeated catch phrases.

However, in my opinion, the reasoning provided by the FCA is unsatisfactory. Both Free World and Whirlpool are authorities for the test for patent infringement, not the test for patentable subject matter. The SCC held that claims had to be construed in a purposive manner to determine whether the alleged infringer’s invention came within the metes and bounds of the patented invention. More importantly, the key to purposive construction was to identify the particular words or phrases in the claim that described what the inventor considered to be essential elements of the invention (Whirlpool). For an infringement to be found, all essential elements had to be present in the infringing device, whereas non-essential elements could be omitted or substituted.

Furthermore, determining infringement does not depend on the function of the invention. Even though the inventions perform the same function, there would be no infringement if the essential elements were different. However, patentability at its root asks whether the invention provides a solution to a practical problem. In the Act and in case law, distinguishing the essential elements from the non-essential elements of the claims has never been the test for determining patentable subject matter. By falling short of providing thorough considerations of policy implications, the objectives of the Act and the intention of Parliament, the FCA’s reasoning is disappointing.

Must Patentable Subject Matter be Scientific or Technological in Nature?

The FCA essentially avoided this question by saying that this question is “unclear and confusing” and that the word “technological” is “highly subjective and unpredictable”. The FCA held that “this test should not be used as a stand-alone basis for distinguishing patentable from non-patentable subject matter.” However, the FCA embraced the patentability of the one-click method by stating that it seems “to be a technological solution to a practical problem” in its judgment.

Here, the FCA appears to ignore the “technological” requirement; it could even be argued that the FCA has included non-technological inventions as patentable subject matter. However, the FCA failed to consider Canada’s international obligations. As Canada is a member of the World Trade Organization (WTO), it must give effect to the Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPS Agreement”). Thus, the scope of patentable subject matter should be considered in light of Article 27 of the TRIPS Agreement. Article 27(1) of TRIPS provides that: “Patents shall be available for any inventions, whether products or processes, in all field of technology, provided that they are new, involve an inventive step and are capable of industrial application.” Furthermore, the objective of the TRIPS Agreement states the following:

The protection and enforcement of intellectual property right should contribute to the promotion of technological innovation and to the transfer anddissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to the balance of rights and obligations.

It is clear that the “technological” requirement has always been a salient feature in patent law. Therefore, even if the FCA and the Federal Court both found the word “technological” to be confusing and unpredictable, they should have explained why they avoided addressing this fundamental requirement in our patent system.

Can a Business Method ever be Patentable Subject Matter?

While the FCA affirmed that “a mere business scheme with no practical embodiment will be considered to be an abstract idea or theorem and will therefore be non-patentable”, it held that the “one-click” method patent claims described a business method that had a practical application. More importantly, the FCA stated:

There is no basis for the Commissioner’s assumption that there is a ‘tradition’ of excluding business methods from patentability in Canada. No Canadian jurisprudence determines conclusively that a business method cannot be patentable subject matter.

However, the FCA cautioned that because “a business method always has or is intended to have a practical application”, a business method that is itself not patentable because it is an abstract idea does not become patentable merely because it has a practical embodiment or a practical application. The FCA ultimately ordered that “the task of purposive construction of the claims should be undertaken anew by the Commissioner, with a mind open to the possibility that a novel business method may be an essential element of a valid patent claim.”

Here, the FCA left an important question unanswered. Computer-implemented inventions are usually based on mathematical formulae, theorem or abstract ideas, which are all non-patentable subject matter. As the FCA suggested, a business method always has a practical application, yet having a practical application does not make the invention patentable. Then, what is needed to make a business method patentable? Clear instructions are needed to inform business owners planning to apply for business method patents in the future.

Must a Patentable Art Cause a Change in the Character or Condition of a Physical Object?

For an art to be patentable, “there must be some manual, chemical, or physical effect to transform or reduce something to a different state or thing” (Lawson v Canada (Commissioner of Patents) (1970), 62 CPR 101). Since a patent cannot be granted for an abstract idea, “it is implicit in the definition of ‘invention’ that patentable subject matter must be something with physical existence, or something that manifests a discernible effect or change.” The FCA agreed with the Federal Court that the nature of the “physicality requirement” might change because of advances in knowledge, such as presence through a computer. However, the FCA held that having a practical application does not automatically satisfy the “physicality requirement”.

Again, the FCA gave us no direction as to the meaning of “discernible effect” or the degree of “change” that is necessary.

How Should the Claims be Construed?

The FCA deferred the construction of the patent claims back to the Commissioner for re-examination. This was appropriate because claim construction must be performed through the eyes and mind of the person skilled in the relevant art at the relevant time. The Commissioner has assistance from expertise at the patent office and submissions from the patent application. Courts, without any expert evidence, would likely produce a literal interpretation of the claims, which would not be well informed.

Life After the FCA Decision

It is interesting to note that the Canadian Life and Health Insurance Association Inc. and the Canadian Bankers Association appeared as interveners and made submissions supporting the position of the Attorney General of Canada. They argued:

The net result of the decision to issue on appeal could be to allow the patenting of ideas, or mental steps, such as many of the methods and steps involved in the creation, use and analysis of financial date, methods for managing financial portfolios and investments, methods for creating and managing insurance contracts, methods used to calculate risk or to analyze actuarial, mortgage or underwriting date, financial models and investment strategies and methods for conducting online banking, with the result that their members would be directly impacted.

In sum, they cautioned against opening the floodgates to all sorts of business method claims.

However, the FCA did not address this issue, and simply required the Commissioner to re-examine the patent application on an expedited basis in accordance with its reasons. CIPO subsequently granted the business method patent to Amazon. As I have argued in this post, the FCA decision substantially lowers the threshold of patentable subject matter but leaves us with too much uncertainty in the law of patentable subject matter. After more than 13 years in legal battle, Amazon has won, but the law of patenting business method remains unclear.